Digital, personalised services are impacting regional banking

The past few years have brought about significant transformations in many areas of our daily lives.

From work to communication and entertainment, everything is becoming increasingly digital and tailored to individual needs.

The banking industry has witnessed a major shift towards technology-driven and personalised services, pushing us towards a new future that was once considered far-off – and this is particularly evident in the Middle East.

Free zones, regulatory sandboxes, and specialised fintech hubs are just some initiatives many Middle Eastern countries have set up to promote innovation and test new solutions. These include Dubai Financial Services Authority’s Innovation Testing License, Egypt’s FinTech Sandbox, and Saudi Arabian Monetary Agency’s Regulatory Sandbox. The Saudi Central Bank also introduced new rules to improve the efficiency and infrastructure of payments in 2023.

Digital banking services on the rise

Given that the Middle East has one of the highest rates of smartphone penetration worldwide, a considerable portion of the population is already using digital banking services regularly. Notably, in the UAE noncash payments, including cardless payments, are estimated to account for 73 per cent of the total transaction volume in 2023, up from just 39 per cent in 2018. Moreover, the Arab region is defined by an enormous demographic advantage.

With approximately one-third of the population falling under the age of 30, a significant socioeconomic shift is underway. As younger individuals transition into adulthood over the next decade, there will be new demands for digital banking products and services that cater to their wants and needs.

Fostering innovation to meet rising expectations

Amidst this flourishing environment for digital banking services, the industry focuses on rapid innovation and customer-centric approaches. Finastra’s Financial Services State of the Nation 2023 survey revealed that nearly nine out of 10 financial institution decision-makers in the UAE and Saudi Arabia are excited about the opportunities that fast technological and cultural change in financial services will bring.

Banking as a Service (BaaS), embedded finance, and artificial intelligence (AI) are taking centre stage, enabling institutions to offer the seamless, personalised experiences that customers increasingly demand.

 Organisations are moving beyond the planning phase with BaaS and embedded finance, accelerating their implementation. These innovations offer the means for financial institutions to integrate their services into the apps, websites, and other platforms their customers already use.

Over the past 12 months, 49 per cent in the UAE and 53 per cent in Saudi Arabia have either deployed BaaS or improved their capabilities in this area, including buy now pay later schemes, embedded foreign exchange, cross-border payments, and lending to small and medium-sized enterprises (SMEs).

Financial institutions are also exploring the numerous benefits of AI. In the last 12 months, 45 per cent of firms in the UAE and 55 per cent in Saudi Arabia have deployed or improved AI. Interestingly, 41 per cent of UAE’s and 37 per cent of Saudi Arabia’s institutions use or plan to use generative AI to enhance the customer experience.

AI can also support more seamless experiences with BaaS and embedded finance, such as faster and more accurate credit decisions and fraud detection, and more personalised services such as savings and investment options based on analyses of customer behaviour and needs – all within the context of their current user journey.

Overcoming challenges through partnerships

The capacity of banks to digitalise in the current global economic climate has been challenging. Developing brand-new digital services from the ground up can be both expensive and a lengthy process – and customers don’t want to wait for services they can already find elsewhere. As a result, collaboration is essential for staying relevant and succeeding in this new age of digital banking.

Traditional banks in the Middle East are increasingly collaborating with fintechs and software providers.

According to the same survey, around nine in 10 decision-makers (95 per cent in the UAE, 92 per cent in Saudi Arabia) say that collaboration has made their business more efficient and that it has been a driver for success (89 per cent int he UAE, 92 per cent in Saudi Arabia).

The vast majority (89 per cent in the UAE, and 81 per cent in Saudi Arabia) also continue to say that the benefits of collaboration outweigh the costs.

Technology and solutions offered by fintechs and software providers enable financial institutions to improve customer experience, create new services and revenue streams to support growth, add new functionalities to their banking core through APIs, and implement the latest technologies to solve specific challenges.

Ultimately, these partnerships help to establish a dynamic financial ecosystem in the region that combines the stability of traditional banking with the agility of modern fintech. However, finding the right partner is key.

Banking is a sophisticated industry that continues to evolve at speed. Banks therefore need a core banking system that offers rich, broad and deep functionality, powered by advanced technology, to thrive in this landscape. This combination is what banks should look for in a provider’s offering, to deliver the seamless products and services their customers are looking for, how, when and where they want them.

Today, the demand for digital and personalised banking services is steadily growing to new heights. It is these demands that propel us forward at an even faster pace towards the banking of tomorrow, characterised by advanced services founded on robust technology, open banking and collaboration to accommodate the digital, experience-first economy.

The writer is the EVP of Universal Banking at Finastra.